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Financial versus demand shocks in stock price returns of U.S. non-financial firms in the crisis of 2007

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  • Varvara Isyuk

Abstract

In the aftermath of the recent bank-centred financial crisis it is still unclear how much of the decline in non-financial firms' stock prices was due to liquidit0y shortage, and how much of this decline was due to lower expected consumer demand. The stock returns are examined over nine periods between July 31, 2007 and March 31, 2010. The near-collapse of Bear Stearns and the failure of Lehman Brothers can be both characterised as liquidity shocks that had a greater impact on financially fragile non-financial firms. It was mostly improvement in demand expectations that positively affected the performance of U.S. non-financial firms in the first months of recovery. In the later periods, however, neither amelioration in demand expectations nor improvement of financial conditions can explain the performance of U.S. non-financial firms.

Suggested Citation

  • Varvara Isyuk, 2013. "Financial versus demand shocks in stock price returns of U.S. non-financial firms in the crisis of 2007," International Economics, CEPII research center, issue 133, pages 29-49.
    • Handle: RePEc:cii:cepiie:2013-q1-133-3
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    Cited by:

    1. Narendar Rao & K. Reddy, 2015. "The impact of the global financial crisis on cross-border mergers and acquisitions: a continental and industry analysis," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 309-341, December.
    2. Nguyen, Ha & Qian, Rong, 2014. "Demand collapse or credit crunch to firms? Evidence from the World Bank's financial crisis survey in Eastern Europe," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 125-144.

    More about this item

    Keywords

    Stock price returns; Financial constraints; Liquidity shortage; Shock on demand expectations;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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